Which includes the name of NORONT.

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Spirits were remarkably high at the Toronto Resource Investment Conference last week. The annual showcase for junior mining companies was packed with institutional and retail investors, and each company booth was filled with senior executives who couldn't wait to brag about a recent financing or a new batch of drill results.

This optimism was somewhat surprising, if only because the junior mining sector looked like it was plunging to a painful death mere weeks ago. That was during the height of the credit crunch in August, a period when the world's financial markets were in turmoil. And junior miners were hit harder than almost anything, as investors sold off speculative plays and moved their cash into safer investments. The S&P/TSX Venture composite index, a good proxy for the junior mining world, plunged about 25% in three weeks.

But to the shock of many, the junior mining stocks rapidly bounced back, and so did the financing dollars and investor exuberance. The much-maligned Venture Exchange is now getting daily trading volumes that routinely top 300 million shares, something that would have been unthinkable even a year ago.

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Senior mining companies now buy up juniors after they make big finds.

Photo: Ian Lindsay / CanWest News Service

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It seems peculiar investors have rediscovered speculative mining stocks given that the U.S. subprime troubles are far from over (as Merrill Lynch's US$8.4-billion writedown demonstrated last week).

Experts say investors are betting there won't be a U.S. recession, and that if there is, demand for commodities from developing countries including China will offset weakness in the United States. As they look for places to park their cash, resources still look appealing because demand for raw materials is tangible and growing.

"The credit woes in the U.S. spurred some unwarranted selling in Canada," says one portfolio manager who focuses on junior resource stocks. "And particularly with the asset-backed commercial paper, that issue was overblown as it pertains to the junior mining companies."

Historically, smaller mining companies tend to be more levered to commodity prices than senior producers. Once the panic selling wore off, investors rediscovered that relationship and the firms bounced back.

The fact they recovered so quickly simply demonstrates the faith investors have in this commodity cycle, experts say.

John Kaiser, an analyst focused on junior miners, says another reason they are thriving is that senior mining companies do little exploration anymore.

Instead, they let the juniors do it, and then buy them up once they have found an appealing resource. Speculation about consolidation can hold up the stock valuations and keep the financing flowing for many companies, even during genuine market turmoil.

"The big mining companies are no longer in the business of exploring anything," he says. "They're in a competitive battle to swallow up strategic assets. So the institutional money is going to these companies with advanced deposits. There is an exit strategy in place for these juniors."

As for the smallest juniors that do not even have a mineable resource, Mr. Kaiser says they can flourish in any market. That is because their valuations have nothing to do with commodity prices, and are simply based on what they have found and how big it is.

As an example, he points to Noront Resources Ltd., which recently made a high-grade nickel discovery and is now trading in its own bubble, immune to commodity price moves or subprime mortgage worries. Another company in that situation is VMS Ventures Inc.

"Whether the growth rate in China is 9.5% or 11.5% means very little if a company makes a significant discovery," the portfolio manager says. "So there is a lot of renewed interest [in juniors] on the back of some of these companies."

The question remains how long the juniors would hold up if there is a genuine U.S. recession.

At the Toronto conference, speaker after speaker predicted doom for the U.S. economy, which could mean lower metal prices and big trouble for the companies that are most leveraged to them. The juniors got a hint in August of what a credit crisis could do to them; an actual recession might be a lot worse.

Or as Mr. Kaiser puts it, "It can't last in the long run if the whole thing falls apart."